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India Inc's leverage to stablise; refinancing risk to remain low: Moody's

Agency's report on non-finance entities says earnings growth will be a function of lower prices of key commodities


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Abhijit Lele Mumbai

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India Inc’s leverage is expected to stabilise and refinancing risks would remain low for most rated companies despite higher capital spending (Rs 4 trillion) in the next two years, rating agency Moody’s has said.

Companies will fund capital spending through a mix of internal cash flow and new borrowings to keep overall debt stable. Earnings growth for most companies combined with prudent balance sheet management will buffer the impact of high capital spending, said Moody’s which rates 22 Indian entities.

Moody’s report on non-finance entities said earnings growth will largely be a function of lower prices of key commodities, including crude oil and coking coal. “We estimate that earnings for 17 of the 22 rated companies will grow over the next 12-18 months, while earnings for the remaining five companies will decline over the same period”.

The total earnings before interest, taxes, depreciation and amortisation (Ebitda) for rated companies in India (Baa3 stable) will likely grow by 5-10 per cent annually in Financial Years 2023-24 and 2024-25.

Favourable demographics, rising income and rapid urbanisation combined with supportive financing conditions will support domestic consumption, the main pillar of India's growth, at least until 2030.

Referring to debt to equity balance, Moody’s said “excluding the most and the least leveraged companies, we estimate average debt/EBITDA will fall to 2.5x-2.7x over the next one to two-years months from around 3.0x at end of March 2023”.

As far for obligations to investors, rated Indian entities do not have bond maturities in the remainder of 2023. However, they have around $6.9 billion of foreign currency bond maturities in 2024. Around $4.3 billion or 62 per cent of these bond maturities pertain to high-yield issuers.

Even though capital market access will remain elusive for these issuers, most of them can refinance or repay upcoming maturities from internal accruals or other cash sources. Vedanta Resources Limited is exposed to refinancing risk because proceeds from management fees and dividends from its operating subsidiaries will likely be insufficient to meet upcoming debt maturities, said Moody’s.

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First Published: Aug 25 2023 | 3:36 PM IST

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